Mikhail Selivanov, Interlegal Ukraine
FIATA states that freight forwarding companies get involved in nearly 80 % of international transportations by all types of vehicles.
The official concept of “freight forwarding and logistic services” adopted on 29.10.2004 jointly by FIATA (International Federation of Freight Forwarders Association) and CLECAT (European Association for Forwarding, Transport, Logistic and Customs Service) includes the following:
…services of any kind relating to the carriage (performed by single mode or multimodal transport means), consolidation, storage, handling, packing or distribution of the Goods as well as ancillary and advisory services in connection therewith, including but not limited to customs and fiscal matters, declaring the Goods for official purposes, procuring insurance of the Goods and collecting or procuring payment or documents relating to the Goods or to their transportation.
With regards to the aforesaid formulation, these services cover almost the whole system of goods logistics management. Number of freight forwarding services exceeds 120 items, as shown in the FIATA Official List of international and national freight forwarding services.
Freight forwarders unite consignors, consignees, carriers, other subjects of transport infrastructure (ports, terminals, warehouses etc.), insurers and customs services from various countries. They perform a key function in the process of cargo turnover organization which supposes creation of transport flows under the principle of cost, time and material saving, the essence of which is difficult to overestimate in the international format
Scope of freight forwarder’s liability
Since freight forwarding activity, like any other business activities, faces risks of non-fulfillment or improper fulfillment of contractual obligations, a clear concept of freight forwarder’s liability is required. With regards to diversity of services provided by freight forwarder to its clients, this issue is deemed as the most vital in such type of business activity.
Legal grounds for customer’s requirements and scope of freight forwarder’s liability are set forth in the relevant contract and in the national substantive law, either agreed by the parties as applicable to their relationship or selected by means of conflict of laws. The parties may also apply international regulatory acts the parties whereto are the states of their registration.
National regulatory acts
In Ukraine there is quite a small set of laws governing freight forwarding activity at the national level and it is well-known to freight forwarders. In particular, freight forwarding services are governed by the Law of Ukraine on Freight Forwarding Activity, the Civil Code of Ukraine and the Commercial Code of Ukraine.
According to Part 2 Article 14 of the Law of Ukraine on Freight Forwarding Activity, both freight forwarder and client shall bear responsibility for non-fulfillment or improper fulfillment of obligations under the Freight Forwarding Agreement and under this Law, in accordance with the Civil Code of Ukraine, other laws and the Freight Forwarding Agreement.
According to Article 934 of the Civil Code of Ukraine, freight forwarder shall bear responsibility against the client for violation of Freight Forwarding Agreement pursuant to Chapter 51 of this Code.
The Commercial Code of Ukraine has no special regulations of freight forwarder’s liability.
Article 651 Chapter 51 of the Civil Code of Ukraine provides that violation of the obligations results in the following legal effects provided by the agreement or by the law:
1) Cessation of obligation due to unilateral waiver, unless otherwise provided by the agreement or by the law, or cancellation of agreement;
2) Modifications of the terms of obligation;
3) Forfeit recovery;
4) Reimbursement of material and moral damage.
Pursuant to Part 3 Article 14 of the Law of Ukraine on Freight Forwarding Activity and Article 618 of the Civil Code of Ukraine, freight forwarder shall bear responsibility for violation of the obligation by third persons entrusted with its fulfillment. They may include terminals, in particular transshipment terminals, warehouses and in most cases carriers involved by freight forwarder for cargo transportation.
In view of general law formulations concerning responsibility and absence of regulations upon this issue in freight forwarding industry, freight forwarder’s liability prescribed by the law is very unclear. It provides an opportunity for creditor to charge losses from freight forwarder due to cargo loss or damage in the process of carriage and to take security measures upon fulfillment of the obligation, in particular, to charge forfeit (fine or penalty) set forth in the agreement. The same scope of freight forwarder’s liability is provided for violation of the obligation by third persons involved by it.
International regulations
At the present moment there is no unified international regulatory act upon freight forwarding relationship. In order to establish uniform practice of freight forwarding activity, FIATA drafted non-binding regulations and terms of freight forwarding activity and a standard Freight Forwarding Agreement. These documents are non-binding and cannot serve as grounds for legal relationship between the parties, unless otherwise agreed directly between the parties to the Agreement regarding their application.
Terms of international transportations by road are specified in details at the international level. In particular, relationship between customer and carrier under international cargo transportation by road are governed, inter alia, by the Convention on Contract for International Carriage of Goods by Road dd. 1956, as amended in 1978 (CMR Convention). Ukraine is a party to CMR Convention.
CMR Convention provides several restrictions in respect of carrier’s liability, aimed at compliance with the principle of justice and balance of interests of the parties under the transportation agreement.
In particular, CMR Convention provides restrictions of carrier’s liability in the amount of 8.33 SDR (special drawing rights) per one gross kg of cargo shortage. One more important specification of CMR Convention is a one-year limitation period for claims against carrier.
For 10 years, after Ukraine joined CMR Convention in 2006, vast court practice has been developed in respect of CMR Convention application and interpretation in the context of the Ukrainian legislation.
It is obvious that CMR Convention does not govern directly relationship between freight forwarder and customer. As for the customer who ordered a full set of services on carriage organization, freight forwarder is treated as both organizer and carrier. Customer does not care, which carrier transports cargo at any stage of the route.
So how far does CMR Convention apply to relationship between freight forwarder and customer under the Freight Forwarding Agreement?
Freight forwarder and CMR Convention
According to the principle of justice, one party to legal relationship shall not bear more responsibility than the law provides for the other party to legal relationship, unless otherwise provided directly by the law. With regards to practical approach based on such principle, it is possible to apply limits and other provisions of CMR Convention to liability of freight forwarders who organize international cargo transportation by road, with the proviso.
Ukrainian court practice upon this issue is poor, contradictory and depends mostly on certain case circumstances. Speaking of the general approach, the following should be noted.
A possibility to apply CMR Convention to relationship between customer and freight forwarder is provided in case when freight forwarder is deemed as so-called “productive freight forwarder”, i.e. a person who accepts cargo under its own control at least officially (i.e. under the agreement).
Cargo acceptance under freight forwarder’s control may be certified by the documents drafted either by freight forwarder or by involved third person (warehouse, terminal), such as Acceptance Certificate etc. It is obvious that such documents shall contain a clause that the cargo is provided for freight forwarder or under its control.
Content of the agreement between freight forwarder and customer is also of high importance. It shall state, inter alia, the following: whether freight forwarder acts under this agreement on its own behalf or on behalf of carrier; whether the agreement contains special clauses concerning the scope and the terms of third party involvement by freight forwarder; whether the agreement contains special clauses concerning freight forwarder’s role as carrier.
While applying provisions of CMR Convention, the specification set forth in Part 2 Article 19 of the Law of Ukraine on Freight Forwarding Activity shall be met. It states that if the international treaty provides other regulations than prescribed by the appropriate national legislative act, regulations of the international treaty (i.e. CMR Convention) prescribing the limits of pecuniary liability and restricting the term of bringing to it shall apply.
Case study
Interlegal experts applied successfully an approach based on the aforesaid conclusions, in order to settle the issue upon recovery of losses from freight forwarder – the Ukrainian company, caused by cargo damage in the process of transportation by road.
Agreement on the merits provided a direct reference to application of the Convention on Contract for International Carriage of Goods by Road (CMR Convention) to relationship between the parties. Nevertheless, the parties failed to agree, how far and to which types of contractual relationship CMR Convention shall apply.
Shall freight forwarder be liable for cargo damage under contract performance within freight forwarding services or shall CMR Convention treat its liability as carrier’s role towards its client?
Both the scope of freight forwarder’s liability and applicable limitation period depended on settlement of these issues.
In order to avoid expected discrepancies between the parties under court proceedings, caused, inter alia, by contradictory court practice and ambiguous interpretation of similar cases, Interlegal lawyers held negotiations with the debtor. The results of negotiations were stated in the Agreement on Settlement of Dispute which provided a detailed procedure and method of reimbursement of damages by the debtor – freight forwarder. Clauses of CMR Convention were used as legal grounds for this Agreement.
The Agreement on Settlement of Dispute provided also prolongation of one-year limitation period under CMR Convention.
Conclusion
In our publications we highlighted for several times that reasonable security measures regarding proper fulfillment of freight forwarder’s obligations guarantee actual reimbursement of cargo loss or damage by freight forwarder.
Similar regulations have advantages for freight forwarder, such as awareness and understanding of the scope of its liability, incorporation of the appropriate clauses into agreements with its subcontractor and an opportunity to take prompt measures in order to minimize losses and defend its interests.
One of the “simplest” methods – correct structure of contractual provisions and incorporation of necessary clauses governing application of international acts to certain types of relationship. Standard Freight Forwarding Regulations shall not remain ignored: they may be adopted within the freight forwarder’s company and may settle various situations arising from relationship with its client. Such regulations may be incorporated respectively into each agreement between the freight forwarder and the client.